Fannie and Freddie off S&P Downgrade Review

Standard & Poor's announced on Monday it was no longer reviewing Fannie Mae and Freddie Mac for a negative rating by affirming both government sponsored enterprises with a stable outlook.

The ratings agency also lowered the 'risk-to-the-government' rating (this measures what the company's financial strength would be without government backing) for both GSEs. S&P also affirmed its ratings on Freddie Mac, after stating it expects lower earnings volatility during the next two years and strong commitment to improving capital ratios.

In a statement released to the press, the rating agency backed their decision to downgrade Fannie Mae's rating.

"Fannie Mae is facing the most challenging housing and mortgage cycle in more than three decades and at a time when its core earnings are weakened both from higher credit - related expenses and significant spread widening on both agency and non-agency mortgage backed securities," S&P said.

Freddie Mac raised a significant amount of preferred capital ($6 billion in the fourth quarter 2007) and says it plans to raise an additional $5.5 billion of equity.